Fact Sheet

December, 2001

Gifts and awards given by employers to their employees

A change in how gifts and awards are taxed is good news for both employers and employees. The new policy is effective for the 2001 and subsequent tax years.

To mark special occasions such as Christmas, Hanukkah, birthdays, or a marriage, employers can give their employees two non-cash gifts per year on a tax-free basis. In addition, to honour achievements such as years of service or meeting safety standards, employers can give their employees two non-cash awards per year on a tax-free basis.

The two gifts' or the two awards' total cost to the employer, including taxes, cannot be over $500 per year.

Employers can deduct the total cost of the gifts or awards from their taxes.

Employees do not have to declare the cost of the gifts or awards as part of their taxable income.

If the cost of each gift or award is over the $500 limit, the employer must include the full fair-market value of the gift(s) or award(s) in the employee's income.

If an employer gives two or more gifts -- or two or more awards -- in a single year and their total cost is over the $500 limit, the employer may have to include the fair-market value of one or more of the gifts or awards in the employee's income.

This is determined by the cost of each gift or award, and also by the number of gifts or awards given in a single year.

The new policy does not apply to cash or near-cash gifts and awards such as gift certificates, gold nuggets, or other items that can easily be converted into cash. The value of this type of gift or award is considered a taxable employment benefit.

Examples and further details are available on the CCRA Web site at www.ccra.gc.ca/gifts.